Chicago Teachers’ Retirement Benefits Are Extravagant

When Chicago teachers began their strike on Monday, critics rightly pointed out that the city already pays one of the highest average teacher salaries in the nation. Even more important, however, is the generous retirement package received by Chicago public school teachers.

A Chicago teacher who retired in 2011 after 30 or more years of service time could expect an annual pension payment of $77,496. For context, the average Social Security benefit—which requires a much higher employee contribution into the system—would likely be in the range of $25,000 to $30,000 per year for a worker with a similar salary history.

Another way to think about the Chicago teacher pension system is to examine the employer’s “normal cost,” meaning the cost of additional benefits that accrue each year to current teachers. In 2011, the risk-adjusted normal cost was 46 percent of wages. (See technical note below.*)

In other words, for every dollar of salary paid to Chicago teachers, the city also incurred a cost of 46 cents for the future pension benefits they accrued in 2011. By contrast, the employer cost of a typical 401(k) plan in the private sector is about 4 percent of wages.

Chicago teachers also enjoy a benefit that is rare in the private sector—retiree health coverage, which allows teachers who retire (often in their 50s) to maintain their health insurance until Medicare kicks in at 65. Accrued retiree health benefits for current teachers cost the city another 5 percent of salaries last year, meaning an additional five cents for every dollar paid in salary.

With retirement benefits that easily outstrip benefits provided to similar workers in the private sector, Chicago teachers going on strike to demand even higher compensation from taxpayers is just not defensible.

*Technical note: The risk-adjusted normal cost of pensions comes from converting the published normal cost of 14.32 percent of wages discounted at 8.0 percent to the normal cost discounted at the prevailing risk-free interest rate in July 2011, which was 3.67 percent. The employee contribution of roughly 2 percent of wages was then subtracted from the total. For an explanation of these calculations in gory detail, see “The Real Cost of Public Pensions.”

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I don't know if I'd call it extravagant. Are you saying that they should be expected to live on $25-30,000 in a city where cost of living is higher than the average after working for 30 years? Would you say that's fair if your parents were teachers who had worked for 30 years? Teachers in Illinois and other states are excluded from SS benefits, as well as their spouses SS benefits (any benefits are deducted from pension amount.) Teachers pay into the pension fund every paycheck, and should get a pension just like many other employees in the private sector enjoy. Stop demonizing teachers for expecting a decent living – especially if you've never set foot in an urban classroom.

No one demonized teachers in this article. But pension benefits place a huge burden on the city which grows over time as more teachers, living longer, enter the system. It is unsustainable or can you show me math to the contrary? There are cities being forced to declare bankruptcy because of similar issues. In most other professions you have to contribute significanlty to your pension, in order to expect these kinds of benefits. This has to do with economic reality. These pension plans are simply going to prove unsustainable over the long-run.

My father, as a retired Senior Naval Officer, serving during two wars, earns quite a bit less in pension.

How many parents can expect this kind of pension from their professions?

What about personal responsibility to save and invest your earnings for the future and retirement? Why do the taxpayers need to fund lifetime pensions and healthcare for anyone, especially public sector employees?
There used to be a time where public sector workers were paid far less than their private counterparts, in exchange for more generous retirement and health benefits. Now, public sector union employees are paid far more than the private sector in addition to their generous benefits.
If I were in charge, I would take away all pensions and make the public sector unions contribute to their 401k plans just like the rest of us. Unfortunately due to pandering politicians, we have public sector employees retiring at age 48 with lifetime pensions of more than $75k.

Nonsense, and you are clearly a teacher, or a shill for teachers. They do not pay anywhere near the amount they will collect from their pension, and that is patently obvious. Public school is one of the great rip-offs today, and the result these very well-paid "educators" achieve are so disastrous and embarrasing, no honest person can rightfully defend them.

Interesting article. At what point, though, do we use compensation to attract and retain, and in some cases reward, our educators? While I often agree with the economical side of your posts there seems to be a complete lack of respect for the teaching profession. How was we better value our teachers? How do we ensure we create a culture and compensation system that draws people to the profession?

The lack of respect for educators has been brought on by the profession itself. This is the heart of the issue with the Chicago's teachers, they do not want to be evalvuated on proformance. As with most Government agencies there is no evaluation of performance requirements to maintain employment. To answer your question privataized the school systems, let schools complete for the right to eduacte our kids.

Teachers pay both Social Security and 9.5% of their pay for retirement. They are not able to collect Social Security. They put their heart and soul into their job and put their life on the line every day. They should be able to retire in comfort.

can you explain how these teachers have to pay social security taxes from their pay but cannot collect social security benefits? this is such an uninformed mindless statement. please go back and check the fed laws on social security entitlement. if you are referring to government pension offset, it only applies to pensioned public employees who were exempt from social security taxes on their wages and then filed for spousal benefits.

Teachers do not pay into SS. Please keep in mind that they are also not given the choice to pay into SS. So don't get mad at teachers, get mad at the system. If you were given the option of pension or nothing, you would take pension.

The reason for the pension crisis is Mayor Daley. Read the 1995 law which took the tax levy away for pensions where it was supposed to go and the schools took the money. If they would have left it alone the teachers' pension fund would be at 100 percent funded. There would be no crisis.

Chicago teachers retiring on $77,000 a year is unfair on the taxpayers who are living on social security of $25000 when they have made it to 65, not 55 like teachers. Teachers are not in a special category, nor are any other govt workers. If it was up to me, all pensions would fall into the social security program which I am in since I don' work for the government. I only pay the salaries and benefits to them which I can not get. No free healthcare, no age 55 retirement, etc. There is something wrong with this picture when all the politicians talk about cutting ss benefits, yet say nothing about cutting retirement benefits fo taxpayer supported jobs. 7 people can retire on SS for the same costs of 1 teacher at $77,000/yr. when your figure their retirement starting at 55 and the ss recipients at age 65. The system is out of kilter here again.

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